THE local currency has gained value against the dollar over the week, with the latest foreign-exchange trade values showing the peso trying to break the 51 territory on Thursday.
Data from the Bankers Association of the Philippines showed that the local currency ended Thursday’s trade at P52.13 to a dollar. The total traded volume for the day was at about $1.2 billion.
The peso opened the day at 51.98 to a dollar and tested the 51 band during the day. It reached a low of 51.97 and a high of 52.145 to a dollar.
The direction of the peso is toward an appreciation trend from the 52.23 to a dollar average in the previous month and from the 54 to a dollar average just about four months ago.
ING Bank Manila economist Nicholas Mapa said the peso enjoyed the appreciation pressure in the first few weeks of 2019, as portfolio flows helped lift the local currency.
“Data collected by the BSP shows that roughly $800 million worth of portfolio investments [both bond and equity] have entered in 2019, helping the currency, the Philippine Stock Exchange and the local bond market see a good start to the year,” Mapa said.
Mapa further said the appreciation trend the country is seeing is largely beneficial to the Bangko Sentral ng Pilipinas (BSP), as it will help the country’s monetary authority rebuild its international reserves portfolio this year.
Lowest GIR in years
The country’s gross international reserves (GIR) hit its lowest in recent years in October, when it settled at $74.71 billion, due mainly to the local currency’s bouts of weaknesses.
As of January this year, the BSP has been able to rebuild its reserves back up to $82.49 billion.
The GIR is the level of foreign exchange holdings of the BSP during a given period. It is a crucial component of the economy as it is often used to manage the country’s foreign- exchange rate against excess volatilities.
“With the tide flowing inward in 2019, the BSP has been steadfast to stem the appreciation pressure, helping the BSP rebuild its war chest and restore peso liquidity that was lost during the 2018 defense of the peso when the tide was flowing the opposite direction,” Mapa siad.
The improvement in the country’s current account narrative is also expected to give the peso the boost it needs to sustain the appreciation run, but only in the short term. “Although the current account will likely remain in the red due to a projected trade deficit, a smaller oil import bill and a possible slowdown in capital goods imports may help the exports close the gap with inbound shipments, resulting in a less wide trade deficit,” Mapa said. “This, together with the current tide of hot money flows will likely lend some appreciation pressure to the Peso in the short term.”
“But medium-term prospects for the peso may rest on the tide, given expectations that traditional sources of foreign exchange [remittances and BPO receipts] are unable to offset the trade deficit,” he added.